OpenAI Faces New Lawsuit Over AI Hardware Venture

A secretive competition to pioneer a new way of communicating with artificial intelligence chatbots is unfolding publicly as OpenAI faces a trademark dispute over its stealth hardware collaboration with legendary iPhone designer Jony Ive. The latest development in this legal battle involves tech startup iyO Inc., which has already sued Ive and OpenAI CEO Sam Altman for trademark infringement, now suing one of its former employees for allegedly leaking a confidential drawing of iyO’s unreleased product.

At the core of this dispute is a significant idea: the future of AI assistants should not require users to stare at computer or phone screens or talk to devices like Amazon’s Alexa. Instead, interactions should be more natural. The company that develops this new AI interface stands to gain immensely.

OpenAI began outlining its vision in May by acquiring io Products, a product and engineering company co-founded by Ive, in a deal valued at nearly $6.5 billion. Shortly after, iyO filed a lawsuit for trademark infringement due to the similar-sounding name and past interactions between the two firms. U.S. District Judge Trina Thompson ruled last month that iyO has a strong enough case to proceed to a hearing this fall. Until then, she ordered Altman, Ive, and OpenAI to refrain from using the io brand, forcing them to take down the web page and all mentions of the venture.

A second lawsuit from iyO, filed this week in San Francisco Superior Court, accuses a former iyO executive, Dan Sargent, of breach of contract and misappropriation of trade secrets. Sargent allegedly met with another io co-founder, Tang Yew Tan, a close Ive ally who led the design of the Apple Watch. Sargent left iyO in December and now works for Apple. He and Apple did not immediately respond to a request for comment.

“This is not an action we take lightly,” said iyO CEO Jason Rugolo in a statement. “Our primary goal here is not to target a former employee, whom we considered a friend, but to hold accountable those whom we believe preyed on him from a position of power.”

Rugolo believed he was on the right path in 2022 when he pitched his ideas and showed off his prototypes to firms tied to Altman and Ive. He later publicly expanded on his earbud-like “audio computer” product in a TED Talk. What he didn’t know was that soon after, Ive and Altman would begin quietly collaborating on their own AI hardware initiative and give it a similar name.

The new venture was revealed publicly in a May video announcement, and to Rugolo about two months earlier after he had emailed Altman with an investment pitch. “Thanks but I’m working on something competitive so will (respectfully) pass!” Altman wrote to Rugolo in March, adding in parentheses that it was called io.

Altman has dismissed iyO’s lawsuit as a “silly, disappointing and wrong” move from a “quite persistent” Rugolo. Other executives in court documents have characterized the product Rugolo was pitching them as a failed one that didn’t work properly in a demo. Altman said in a written declaration that he and Ive chose the “io” name two years ago in reference to the concept of “input/output” that describes how a computer receives and transmits information. Neither io nor iyO was first to play with the phrasing, but Altman said he and Ive acquired the io.com domain name in August 2023.

The idea was “to create products that go beyond traditional products and interfaces,” Altman said. “We want to create new ways for people to input their requests and new ways for them to receive helpful outputs, powered by AI.”

A number of startups have already tried, and mostly failed, to build gadgetry for AI interactions. The startup Humane developed a wearable pin that you could talk to, but it was poorly reviewed and the startup discontinued sales after HP acquired its assets earlier this year.

Altman has suggested that io’s version could be different. He said in a now-removed video that he’s already trying a prototype at home that Ive gave him, calling it “the coolest piece of technology that the world will have ever seen.”

What Altman and Ive still haven’t said is what exactly it is. The court case, however, has forced their team to disclose what it’s not. “Its design is not yet finalized, but it is not an in-ear device, nor a wearable device,” said Tan in a court declaration that sought to distance the venture from iyO’s product.

It was that same declaration that led iyO to sue Sargent this week. Tan revealed in the filing that he had talked to a “now former” iyO engineer who was looking for a job because of his frustration with “iyO’s slow pace, unscalable product plans, and continued acceptance of preorders without a sellable product.”

Those conversations with the unnamed employee led Tan to conclude “that iyO was basically offering ‘vaporware’ — advertising for a product that does not actually exist or function as advertised, and my instinct was to avoid meeting with iyO myself and to discourage others from doing so.”

IyO said its investigators recently reached out to Sargent and confirmed he was the one who met with Tan. Rugolo told the AP he feels duped after he first pitched his idea to Altman in 2022 through the Apollo Projects, a venture capital firm started by Altman and his brothers. Rugolo said he demonstrated his products and the firm politely declined, with the explanation that they don’t do consumer hardware investments.

That same year, Rugolo also pitched the same idea to Ive through LoveFrom, the San Francisco design firm started by Ive after he left Apple. Ive’s firm also declined. “I feel kind of stupid now,” Rugolo added. “Because we talked for so long. I met with them so many times and demo’d all their people — at least seven people there. Met with them in person a bunch of times, talking about all our ideas.”